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Interest Only Mortgage Calculator

Free Online Interest Only Mortgage Calculator

Use our free online interest only mortgage calculator to work out if interest only mortgages are for you.

Interest-Only Mortgage Calculator

Results

Periodic Interest-Only Payment: $0.00
Total Interest Paid (Interest-Only Period): $0.00
Remaining Principal at End: $0.00
Estimated Payment After Interest-Only Period: $0.00

Input

  • Currency Selection:
    • Chooses the currency symbol (e.g., $, €, £, ¥) that prefixes monetary values.
  • Mortgage Amount (Principal):
    • The total loan amount borrowed for the mortgage.
  • Annual Interest Rate:
    • The yearly interest rate applied to the mortgage, expressed as a percentage.
  • Loan Term (Years):
    • The overall duration of the mortgage loan, determining the repayment period.
  • Interest-Only Period (Years):
    • The duration during which only the interest is paid, with no reduction in the principal.
  • Payment Frequency:
    • How often payments are made (e.g., monthly, biweekly, quarterly, or annually), affecting the calculation of periodic payments.

Output

  • Periodic Interest-Only Payment:
    • The calculated payment amount per period during the interest-only phase, derived from the principal and interest rate.
  • Total Interest Paid (Interest-Only Period):
    • The cumulative interest that will be paid over the entire interest-only period.
  • Remaining Principal at End:
    • The outstanding mortgage amount after the interest-only period, which remains unchanged if no principal payments are made.
  • Estimated Payment After Interest-Only Period:
    • An approximation of the combined principal-plus-interest payment once the loan converts after the interest-only period, based on the remaining loan term and current interest rate.

Introduction to Interest only Mortgages

Interest Only Mortgage Calculator
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An interest-only mortgage involves a period where the borrower pays only the loan’s interest charge.

This setup can lower monthly costs at the start and may appeal to those who prefer a reduced outlay while they allocate funds to other needs.

It can also affect mortgage affordability because the principal does not decrease during the interest-only phase, so planning is key when rates change or when the loan eventually transitions to a full repayment schedule.

An interest-only mortgage calculator offers a simple way to project these costs across various scenarios.

It shows how shifts in rates or terms affect cash flow and can support financial planning for short or long timeframes. This tool helps users compare different possibilities, examine near-term benefits, and anticipate any potential future obligations.

What Is an Interest-Only Mortgage?

realtor suggesting mortgage for buying apartment
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An interest-only mortgage means paying just the interest charges on the total loan balance, without reducing the principal (initial amount) for what ever length of loan you’ve taken.

The loan term is fixed from the start, and the interest rate can be stable or adjustable. This approach differs from a standard repayment plan where each installment brings down both principal (initial amount) and interest.

Some borrowers choose this format if they need lower payments at first or if they want extra monthly funds for other expenses. Investors may look at these options when exploring various mortgage options, since early cash flow can be a priority. Once the initial phase ends, the monthly payment may rise because future installments will address the remaining principal plus interest. (Keywords: interest-only mortgage, principal, loan term, mortgage options)

Benefits and Drawbacks of Interest-Only Mortgages

As with all things in life, nothing is a golden ticket.

There are pro’s and con’s of interest only mortgages, so let’s look at some of the biggest advantages and disadvantages of interest only mortgages.

Advantages:

  • May lead to smaller monthly payment totals during early stages, which can assist with mortgage affordability.
  • Allows a borrower to allocate money toward other goals while limiting direct principal reduction in the short term.
  • Can serve as a flexible mortgage strategy if a borrower anticipates an increase in future income or plans to sell before principal repayment begins.

Disadvantages:

  • May involve a rise in monthly payment totals once the interest-only mortgage phase ends, since principal repayment commences.
  • Carries the risk of little to no equity gain if housing market conditions remain steady or decline.
  • Can increase loan risk if the borrower does not prepare for the future shift in obligations, potentially affecting long-term financial planning and cash flow.

This approach can be attractive if a borrower wants to maintain extra cash flow at the beginning of a loan term.

Our Interest Only Mortgage Calculator should be used in conjunction with these advantages and disadvantages to help you decide if you should opt for a fixed rate / floating rate repayment mortgage or an interest only mortgage.

Finding this calculator useful? Try some of our other free online calculators!

Conclusion

Interest only mortgages are not for everyone, but can solve a purpose.

Using our Interest Only Mortgage Calculator should hopefully help you understand if an interest only mortgage would work for you.

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